VC Funding in Web3 Drops: A Crisis or a Reboot?
Crunchbase analytics suggests that venture capital funding for decentralized technologies has hit a two-year low, potentially signaling a shift in market dynamics.
In the second quarter of 2023, the sector saw venture investments of around $1.8 billion, spread across 322 deals. This marks a significant 76% drop compared to the previous year. A downward trend has been persistent for six consecutive quarters, hinting at an increasingly cautious investor behaviour. Investors appear to be strategically reducing risk and steering towards more promising areas, such as artificial intelligence.
A mere 25% of the total funds were allocated to major financing rounds. Companies primarily invested in popular innovations that had already garnered substantial user support, such as LayerZero Labs ($120 million), Islamic Coin ($200 million), and Worldcoin ($115 million). Regular venture giants in the cryptocurrency market like a16z and Sequoia Capital were the primary investors.
This declining dynamic can be perceived from a different angle. The past two quarters, despite having relatively small investments, maintained stability, indicating a consistent interest. Crunchbase interprets this stability as a potential turning point, especially considering the significant growth cryptocurrencies have demonstrated since the year's start. Moreover, large-scale investment funds like BlackRock and others have already submitted applications for Bitcoin ETFs.
However, the pressure from regulatory bodies persists and the market is grappling with a liquidity shortage, implying that it might not be sensible to anticipate a swift trend reversal. Capitalists need to be assured that their investments in cryptocurrency projects will generate returns significantly outweighing potential risks, and that their participation in funding will not instigate any major issues with governmental bodies.
Indeed, the advent of new technologies, artificial intelligence in particular, will invariably encounter regulation in the future. Despite their largely positive contributions to various fields, including healthcare and industry, they are also a source of numerous social issues. Unemployment, inequality, copyright infringement, and the obsoleting of certain professions are just a few examples. While these issues currently seem to be overlooked by governments, investors realize that this will not last.
